The Middle Ground

A GUIDE TO DEAL TERMS IN PLAIN ENGLISH


+ Introduction

+ Purchase and Sale

+ Closing

+ Representations & Warranties - Seller

+ Representations & Warranties - Buyer

+ Covenants

+ Conditions to Closing

+ Indemnification

+ Termination

+ Miscellaneous

Closing Deliverables


Classification: Deal Driver
Section: Closing
Negotiation Time: Minimal
Transaction Costs: Insignificant
Major Impact: Transaction Completion


What is This? Both parties to the transaction are required to provide certain documents and property to the other side at the Closing. This portion of the Agreement sets out everything that must be delivered, and who is responsible for delivery of each item.

The Middle Ground: The exact deliverables depend on the specifics of the transaction, but typically they include a Closing certificate, necessary consents, deeds for real property, intellectual property assignment agreements, and the money due at Closing.

Purpose: The failure of either side to provide the deliverables listed in this section could completely destroy the deal. One of the Conditions to Closing is that both parties have satisfied their requirements under the Closing Deliverables provision, meaning if one party does not comply with these obligations the other party can walk away from the deal without repercussion. Therefore, this section motivates both sides to promptly address their obligations by setting a deadline for delivery and imposing a severe punishment for a failure to follow through.

Buyer Preference: If registered intellectual property is being transferred, the Buyer will prefer to have short-form assignment and assumption agreements in addition to the longer forms so they can use the short-forms for public filings with the US Patent and Trademark Office (generally, neither side wants all the details included in the long forms to become public record). If a deed for real property is part of the transfer, the Buyer will want to seek a deed that, in light of the facts, provides maximum protection against third parties coming in after the sale and claiming the land as their own. A general warranty deed is the ideal choice, but obtaining one may not be feasible in certain situations. Finally, the Buyer wants to obtain a power of attorney from the Seller for all matters related to operation of the Business and any Purchased Assets.

Seller Preference: For transfers of real property, the Seller prefers to provide a deed with little or no warranties, meaning a quitclaim deed is the ideal choice. Whether a deed backed by further warranties is appropriate depends on the Seller’s familiarity with the real estate in question.

Differences in a Stock Sale Transaction Structure: This section is not included in a stock sale, as the only items to be tendered at the time of Closing are the cash due at Closing and the shares being transferred.


DISCUSSION

We want The Middle Ground to be an ongoing dialogue for and resource to the lower middle market M&A community. The outline above is generally applicable, but there is always specific case law and nuance around certain industries that can be useful in helping buyers and sellers come together. If you are a lawyer or deal professional, we encourage you to add your perspective below.